The Dow transports closed down about 0.9 percent after dipping 1 percent, with only airlines advancing.
U.S. stock index futures turned lower in pre-market trade as the globally traded Brent crude fell more than $1 to below $42 a barrel, a more than six-and-a-half-year low. The decline came after the Organization of the Petroleum Exporting Countries failed on Friday to agree on a production curb to stem sliding prices and a stronger dollar made holding crude positions more expensive.
Brent crude settled at $40.73, down 5.28 percent, for its lowest settle since Feb. 18, 2009.
Read MoreDon't expect to see oil above $50 for a while
"The OPEC announcement on Friday was really psychological, little to no practical effect for global oil supply," said Pavel Molchanov, energy analyst at Raymond James, which expects oil prices to recover to near $60 a barrel by the second half of next year.
"Where it's going tomorrow and next week, that's a matter of psychological and technical (factors) than anything fundamental," he said.
The U.S. dollar index pared gains to trade about 0.3 percent higher against major world currencies. The euro held just below $1.085 in the close. The yen traded near 123.3 yen against the greenback.
Treasury yields held lower, with the 2-year yield at 0.93 percent and the 10-year yield at 2.24 percent in the close.
"I think the markets are looking for direction still," said Bruce McCain, chief investment strategist at Key Private Bank.
"Before this market really goes into overdrive I think people would like to see more assurance in general in the economy as a whole," he said. The latest read on ISM manufacturing fell into contraction territory, while the November jobs report showed growth in overall employment and hourly wages.
U.S. stocks surged Friday to close slightly higher for the week on increased certainty of divergent monetary policy, with a strong jobs report supporting a Fed hike in December and European Central Bank President Mario Draghi reaffirming a dovish tone in a speech.
The ECB's decision on monetary policy Thursday fell short of market expectations for greater stimulus and sent the euro above $1.09 for its biggest one-day gain against the dollar since March 2009.
Marc Chandler, global head of currency strategy at Brown Brothers Harriman, said he thinks the euro may have bottomed in the short-term and doesn't expect an immediate resumption of the dollar bull trend.
"Thursday blew you out of the water and emotionally you're not ready to go back in," he said.
Read MoreFed quiets ahead of hike; stocks may take breather
"I think (the decline in stocks) has to do with the strength of the dollar as well," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.
"You have central bankers dictating (direction) really in the absence of news. ... I think the driver between now and mid-next week is setting up for Fed policy decision," he said.
Ahead of the Federal Reserve's highly anticipated meeting Dec. 15 and 16, Atlanta Fed President Dennis Lockhart said on CNBC's "Squawk Box" Monday that economic conditions are satisfactory and the financial markets are well-prepared for the Fed to hike this month.
Separately, St. Louis Federal Reserve President James Bullard said in a Reuters report Monday that inaccurate Fed forecasts of growth, employment and inflation have pulled the central bank in conflicting directions, and driven the decision to keep rates low for so long.
He also said once the Fed decides to hike rates, attention will shift to actual movement in inflation to see if the central bank's economic narrative proves accurate.
Major data scheduled this week include the Job Openings and Labor Turnover Survey (JOLTS) Tuesday and retail sales Friday.
Minor economic reports released Monday included U.S. October consumer credit, which increased $15.98 billion, while September was revised to $28.57 billion from $28.92 billion.
The Fed's Labor Market Conditions Index for November was 0.5, while October was revised higher to 2.2 from 1.6.
European equities pared gains as oil declined but the major indexes mostly closed higher Monday after European Central Bank Mario Draghi's dovish remarks Friday. The French CAC ended up nearly 0.9 percent, while the German DAX closed about 1.25 percent higher.
In France, the far-right National Front (FN) party made solid gains in the weekend's regional elections amid increased concern over "homegrown" terrorism and an influx of migrants to Europe.
In individual stock news, Chipotle Mexican Grill closed down about 1.7 percent after briefly falling more than 4.5 percent in intraday trade after the company on Friday issued a fourth-quarter warning and said its sales have been hammered due to an E. coli outbreak.
Keurig Green Mountain closed nearly 72 percent higher to end just below $90 a share after the firm said it has agreed to be taken private by an investor group led by JAB Holding for $92 a share in cash. Trade volume was more than quadruple its 30-day average.
General Electric closed about 0.4 percent lower after its deal to sell its appliance business to Swedish appliance maker Electrolux fell through, Reuters reported. The agreement, which had been announced last year, would have been Electrolux's largest acquisition ever.
Read MoreEarly movers: CMG, DVN, GE, MTN, MFRM, PEP, GMCR & more
The Dow Jones industrial average closed down 117.12 points, or 0.66 percent, at 17,730.51, with Chevron and Exxon Mobil leading decliners and Wal-Mart the greatest advancer.
The S&P 500 closed down 14.62 points, or 0.70 percent, at 2,077.07, with energy leading seven sectors lower and telecommunications leading advancers.
The Nasdaq composite closed down 40.46 points, or 0.79 percent, at 5,101.81.
Apple closed down 0.63 percent, while the iShares Nasdaq Biotechnology ETF (IBB) closed down 2.24 percent.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, held near 16.
About four stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 954 million and a composite volume of 4.0 billion in the close.
Gold futures for February delivery settled down $8.90 to $1,075.20 an ounce.
— Reuters and CNBC's Fred Imbert contributed to this report.
On tap this week:
Tuesday
6 a.m.: NFIB survey
10 a.m.: JOLTS
1 p.m.: 3-year note auction
Wednesday
7 a.m.: Mortgage Applications
10 a.m.: Wholesale trade
10:30 a.m.: Oil inventories
1 p.m.: 10-year note auction
Thursday
8:30 a.m. Initial claims; import prices
10:30 a.m.: Natural gas inventories
1 p.m.: 30-year bond auction
2 p.m.: Federal budget
4:30 p.m.: Fed balance sheet/money supply
Friday
8:30 a.m. Retail sales; PPI
10 a.m.: Consumer sentiment; business inventories
1 p.m.: Rig count
*Planner subject to change.
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